How To PAY ZERO TAX on Income of 15.46 lakhs in 2017-18? -THE VIDURA WAY!


(Last Updated On: February 16, 2018)

Amazed? This is possible if you take the right approach while dealing with your taxes. Today we will show you the secret “The Vidura Way” of how to pay ZERO TAX on the income of Rs.15.46 Lakhs!

(Tax Calculation has been done as per the Finance Act 2017 i.e. for F.Y. 2017-18)

Here is the quick snapshot:

 Normal WayThe Vidura Way
Total Income15,46,000/-15,46,000/-
Tax Payable2,84,589/-0/-

Vidura Way includes these 3 steps, which needs to be followed-

  1. Understanding Your Current Income Structure
  2. Restructuring CTC to reduce Tax outgo
  3. Making best use of available Tax provisions & Deductions.

Still Confused? let me explain, “The Vidura Way”, with the help of story of two brothers Karan & Arjun. Picture this:

Today is the day when their mom could not hold her excitement and kept repeating to herself “Mere Karan Arjun aayenge! Salary laayenge!” and then the magical moment happened followed by a disappointment from Arjun. Even after earning 15 lakhs income Karan paid zero tax and Arjun paid heavy taxes. Let me guess you are wondering “what happened back there??”

Well, Karan used “The Vidura Way” which helped him dramatically save his taxes by taking advantage of the nitty gritty of Tax Laws.

Let’s first look at the table, then we will go through the brief description of all the terms listed in it:

ParticularsPer MonthNo. of MonthsAmount (Rs.)Allowance/
Deduction Exempt
Taxable Income
Basic+DA70,000128,40,000 8,40,000
Transport Allowance16001219,20019,2000
Childern Allowance(2 children)10012240024000
Children Hostel Allowance(2 children)300127,2007,2000
Free food & beverage Coupons11001213,20013,2000
Telephone Reimbursemnt15001218,00018,0000
Uniform Allowance  10,00010,0000
Daily Allowance (60*600)  36,000360000
Travelling Allowance (20*5000)  1,00,0001,00,0000
Medical Reimbursement  15,00015,0000
Club Expenses  20,00020,0000
Leave Travel Allowance  30,00030,0000
Gift Voucher  5,0005,0000
HRA28,000123,36,0002,16,0001,20,000
Employer Contribution to NPS  84,000 84,000
Income from salary  15,36,000 10,44,000
Income /loss from house property (house loan interest from S.O property)
 
   2,00,000-2,00,000
Other income     
Interest From Saving Account  6500  
Interest From Post office  3500 10,000
Gross Total Income  15,46,000  8,54,000
Less – Deductions under chapter VI- A     
80TTA  10,000  
80C  1,50,000  
80CCD(1B)  50,000  
80CCD(2)  84,000  
80D  55,000  
80CCG  25,000  
80DD  75,000  
80DDB  40,000  
80E  50,000  
80G  20,0005,59,0005,59,000
Total Income & Taxable Income    2,95,000

Below is the calculation of how zero tax is paid on Rs. 2,95,000 .

Total taxable IncomeTax on 2,50,000Next 45,000/- @5%Less- Rebate u/s 87ATax
2,95,000Nil2,2502,2500

Rebate u/s 87A- This Rebate is the maximum allowed up to Rs. 2,500/- if total income is less than or equal to Rs. 3, 50,000/-. [For F.Y. 2017-18]

As per the proposals of Budget 2018, there will be a standard deduction of Rs. 40,000/- instead of Transport Allowance and Medical Reimbursement tax benefits for F.Y. 2018-19.




Let’s begin with STEP 1:

Understanding your current CTC structure:

A lot of tax planning is hidden in your CTC structure itself. There are many components in your CTC that are 100% tax-free, without any conditions and some are exempt up to certain limits.

Karan saved Rs 56,856/- of taxes by taking advantage of  100% tax-exempt expenses-

  • Telephone Expenses
  • Daily Allowances
  • Traveling Allowances
  • Uniform Expenses
  • Even club expenses!

Yes, if above-mentioned expenses you incur for official purpose and your employer makes them a part of your CTC, you must claim the tax benefits.

In case you have them as a part of your CTC, then don’t forget to take tax SAVING advantage.


Now, moving to the next step i.e. Step-2

Restructure your Income Structure

A little re-jig of CTC helped Karan save Rs.13,535/- of TAXES!!!

Here are the lists of tax-exempt expenses with limits:

Allowance/ExpenseWhen/Why IncurredLimitAmount of Tax Saved(Rs.)
Transport AllowanceTravel Expense from home to office & back.

1600/month
3200/month(for handicapped)

5,933/-
Children Education AllowanceEducation Fees of Children100/month per child for max. two children742/-
Hostel Expenditure Hostel expenses of children300/month per child for max. two children2,225/-
Medical Expense ReimbursementAmount paid by the employer to meet the medical expenditure of you and family, on submission of bills15,000 in a year4,635/-

As per the proposals of Budget 2018, there will be a standard deduction of Rs. 40,000/- instead of Transport Allowance and Medical Reimbursement tax benefits.

Some other expenses, that you incur every day but did not realize tax benefit attached to them-


Free Food & Beverage Coupons:

Got cafeteria food coupons to munch during office hours? Very yummy right.

Tax department makes food & beverage coupons up to Rs.50 per meal tax-free. So, if we calculate the total tax-free amount, it comes to be Rs. 13,200 (Voucher Rs.50 per day*22 Days *12Months) – Tax benefit on food coupon- 4,079/-

Now comes our favorite one:

HRA(House Rent Allowance)

Tax Benefit: It’s the minimum of :

  1. Actual HRA received;
  2. 50% of salary if living in a metro city (40% for other cities) ;
  3. Rent paid minus 10% of basic salary and D.A.
(HRA exemption Calculation:- (on the basis of rent paid)
(300000- (10% of 840000)= 216000
40% of 840000 =336000
HRA received    =336000

Use our calculator to see how much you save. (Tax benefit on HRA- 66,744/-)

This year take your family out for vacation and enjoy dual benefit! How? Let’s see in the next one-

Leave Travel allowance:

You can claim expenses of journeys for 2 years in a block of 4 years with your family. The exemption on the fare is limited to going anywhere in India. However, the journey should be the shortest route. link (Tax benefit on LTA- 9,270/-)

Although the next one contributes the lesser amount to the exemption value from taxable income, it’s worth if it is saving your tax.

Gift from the company:

If you received any gift from your employer, then there is a double reason to cheer. The value of gifts/ vouchers given by the employer to you or your family member is tax-free if the value is up to Rs.5000 in a year. ( Tax Benefit- 1,545/-)

Pin up the lists of all these expenses on your reminder board.

So, next time you meet your manager, make a request to re-jig your CTC to include them to save taxes.

While you are still in the trauma of losing your money to Income Tax department in previous returns, let us tell you about this amazing way of saving tax on house property that Karan used.

Making best use of available Tax provisions & deductions

House Property :

Sold your house to purchase a new one in some time. Save yourself from the high capital gain tax.

How?Let me explain…

There is a provision in income tax that states, if you sold your house and intend to buy a new one within a period of 2 years, then, there is no need to pay the capital gain tax on it. Just deposit the proceeds gained from selling the old house, in CGAS account and buy a new one with this money.

What’s more, in case, you took the loan to finance the new expensive house. Then, Income Tax has further sweetened the deal.

Use House Loan interest from Self Occupied property!

If your property is the only property you owned and it is SOP (self-occupied) or is vacant, then you can claim the deduction for the EMI paid. (NOTE: self-occupied property doesn’t necessarily mean you live there. Property occupied by Your spouse, children or dependent parents will be considered as S.O.)

You can claim the amount of interest paid to your bank up to Rs. 2,00,000/- towards interest on the home loan in your ITR. This interest paid is set-off against your other incomes.Thus, reducing your taxable income and tax slab.- (Tax Benefit – Rs. 61,800/-)

What’s more interesting is that You claim both HRA and House loan interest at the same time. You can claim both,
-If you are staying in a rented house, then you are eligible to claim HRA tax exemption. Simultaneously, if you have taken a house loan then you can claim the house loan benefits too. If you have bought a house with the help of a home loan and live in another house on rent, you can claim tax benefit for both. But if the house you bought and the house you live in is in the same city, you should have a genuine reason for not living in the house that you own. The reasons could be that the house you own is too far from your workplace, or the commute is very difficult. Read More…

Pretty brilliant, right?

Capital Gains on Shares

What Karan planned will leave you awestruck!

Long-term Capital Gains on sale of listed equity:
The capital gain earned through the sale of shares are non-taxable. Although exemption is provided only when these 2 conditions fulfilled :

  1. The transaction made should be from recognized stock exchange and,
  2. The holding period should be of more than 12 months.

So he actually purchased shares, kept to himself for more than 12 months and the income he received on selling them is tax-free now. Bold move but if it saves tax then it’s worth trying!

However, as per the proposals of Budget 2018, for the first time, long-term capital gains from listed equities exceeding one lakh has been taxed at 10 percent without indexation. This will be applicable from F.Y. 2018-19.


Income from other sources
:

Sharing my personal experience: once we received a notice from income tax department that my grandma is getting interest from her savings accounts and FD’s and she didn’t even know income was taxable.

Remember! what you don’t know might hurt you. Such kind of mistakes might lead you to come into Income Tax scanning.

So here are the other sources of income that Karan had:

  • Savings account: The interest received every year is counted as Income from other sources. But, you can claim deduction under section 80TTA up to Rs.10,000.
  • Post office: There are lots of saving schemes and investment plans provided by Indian Post Office. You can apply for an account which is transferable from one post office to other. Interest from Saving account of Post Office is eligible for certain tax benefits.
  • Gift income from relatives: In India the most peculiar form of income is through gifts. There are some benefits and relief given to this type of income. The maximum limit of exempted is of Rs 50,000 for the gifts received from people that are not relatives. Gift from relatives is tax-free.

Deduction u/s chapter VI- A

Have you ever wished to reduce your expenses? You can frame your expenses tax-free by making good investment decisions just like Karan. These are the 10 deductions which he used, to take maximum tax benefit.

  • 80TTA: The deduction under this section allowed on the interest received on the savings account. The limit is up to Rs. 10,000 that it will be considered as income from Other sources.
  • 80C: Under this section, you can claim a deduction up to Rs. 1,50,000 by investing in LIC, Tuition fees, Principal repayment of housing loan, PPF, NSC, Mutual Funds etc.
  • 80CCD(1B): You can avail an additional benefit of Rs.50,000 under this section if you have contributed to National Pension Scheme. This is over and above the limit of Rs.1,50,000.
  • 80CCD(2): It is the section in which Deduction is available on the contribution paid by employer . It is limited to 10 % of Basic + DA. Now this is the one where you gain multiple benefits- your employer makes the contribution, Your retirement gets secure and you get tax advantage!
  • 80CCG: It’s a deduction in respect of investment under an equity savings scheme. The tax benefit can be claimed when gross total income is less than or equal to Rs.12 lakhs. Under this amount section, 50% deduction is given on the amount invested during the year which is subject to Rs. 25,000.A new investor is not allowed from F.Y. 2017-18 for the tax benefits under this section.
  • 80D: The tax deduction under this section is allowed on the premium paid on medical insurance.
    Deduction limit:
    • For Self (Below 60 years ) -Rs.25,000 per year
    • For Self ( 60 years or above ) -Rs. 30,000 per year (From F.Y.2018-19, its Rs.50,000 per year as per the Budget Proposals 2018)
    • For parents (Below 60 years ) – Rs. 25,000 per year
    • For parents ( 60 years or above ) Rs. 30,000 per year(From F.Y.2018-19, its Rs.50,000 per year as per the Budget Proposals 2018)

ADVICE: Getting a Medical insurance can help you cover the unexpected health emergency.

  • 80DD: This section specially launched to provide some relief to the people with the disability also known as Disable Dependent. Deduction of Rs. 1,25,000 is claimed in case of severe disability. This means when you have more than 80% disability and Rs. 75,000 for more than 40% disability.
  • 80DDB: Expenses incurred during the specific ailments (like AIDS, Cancer and neurological disease) are covered under this section. In case of self or dependent is up to Rs. 40,000 and in case of senior citizen it is up to Rs. 60,000 and very senior citizen up to Rs. 80,000.As per the proposals of Budget 2018, for the purpose of deduction u/s 80DDB, the class of super senior citizen has been submerged into senior citizen and also the limit of Rs.60,000/80,000 has been increased to Rs. 100,000 or the amount actually incurred, whichever is lower.
  • 80E: This allows deduction on the interest paid on higher education loan.
  • 80G: If the amount has been donated or given to charity then the deduction is allowed. This amount claimed can be made on 100% or 50% with or without the Qualifying limit.
  • 80TTB: As per the proposals of Budget 2018, a new section 80TTB has been inserted so as to allow a deduction up to Rs 50,000/- in respect of interest income from deposits held by senior citizens. However, no deduction under section 80TTA shall be allowed in these cases. Thus, for senior citizens, if Interest on FD or Saving Bank income is there than 50,000 deductions from income will be allowed. This will be applicable from F.Y. 2018-19.

Want to know the complete deduction lists? Click here to read the complete guide.

We hope that this article made your tax planning journey a little bit easier. Felt something missing or have any query? let us know in the comments section and we will help you out.

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